The Chinese interbank repo market: An analysis of term premiums

Longzhen Fan and Chu Zhang

Journal of Futures Markets, 2006, vol. 26, issue 2, 153-167

Abstract: Because of the lack of short‐term government bonds, the interbank repo market in China has been providing the best information about market‐driven short‐term interest rates since its inception. This article examines the behavior of the repo rates of various terms and their term premiums. The work in this article supplements the study by F. Longstaff (2000), which reports supportive evidence for the pure expectations hypothesis over the short range of the term structure with the use of repo data from the United States. It is found that the pure expectations hypothesis is statistically rejected, although the term premiums are economically small. It is shown that the short‐term repo rate, repo rate volatility, repo market liquidity, and repo rate spreads are all important in determining the term premiums. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:153–167, 2006

Date: 2006
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